Depression & Credit Card Debt

[ethics]

An <a href="http://www.rense.com/general35/fppe.htm">interview with Michael O'Higgins</a>, a top investment manager predicts a depression a la 1929. This is far more pessimistic than most analysts' assesments that we are just in a recession. One of the reasons for the imminent collapse O'Higgins says, People today have higher levels of debt -- for consumers, government and corporations as a percent of Gross Domestic Product -- now than at any time since 1929, he notes. The depression will not end until that debt is liquidated.

The average american household racked up $8000 in high interest credit card debt during the recent bubble of the mid to late nineties and now with unemployment looming for many, people are trying to pay off their debt, and curtailing spending. In the end, everyone else pays for the fiscal irresponsibility of the few. Should the government mandate credit card companies better educate consumers regarding credit in order to reduce this contributor to market volatility? Or should this be left to personal responsibility regardless of the effect on the overall economy?

[ShinyTop]

I am not an economist and I did not stay at a Holiday Inn Express last night. But the credit card companies operate for profit. The reason they can keep offering cards to one and all and to many who have slim hopes of repaying is the credit card interest rates permitted.

My memory is that the government had limitations on interest rates much much lower than those allowed today. The government had to pass laws or change regulations, I am not sure which, in order to allow rates to rise during the huge inflation of the Carter administration. The reason given was the high inflation which all understood. THE RATES NEVER CAME BACK DOWN, THE REGULATIONS OR LAWS WERE NEVER CHANGED BACK.

I would like to see the limitations on rates reimposed. I know it would have to be done on a gradual basis but by limiting the amount they can charge the credit companies will be more circumspect about who to offer cards. Currently they can offer cards to many who they know have a lower percentage of paying their cards. The rest of us pay higher rates to support the higher risk card holders.

Ethics, one of my pet peeves is how the government removes risk from the business model. Credit card companies just charge good payers and all users more interest or increase penalties to insane levels. Insurance companies are allowed to spread risk for bad drivers and hurricane areas over the entire population instead of charging the rates the higher risk population should pay. Why can't bad drivers be removed so we don't have to share the risk? Or at least pay the rates their conduct deserves? Why can't people who build next to rivers and in hurricane prone areas pay the rates their risk entails instead of the rest of us sharing the cost? Why can't people who cannot afford credit cards be told they are too high a risk until they can afford them? Because business drives laws and business has found out how to eliminate risk, buy law makers.

[BestFriend]

Depression vs. Recession Our history of WWII showed us that we could profit from war. I agree with Michael O'Higgins word, we are going deeper and deeper into a Depression that the government is trying to cover up and try to recoup from. We all know that we were teetering in the Recession. The government is not moving fast enough to tighten our belts...completely the opposite...incurring more debt. More and more citizens are loosing their job due to the economy and companies trying to cut cost to stay alive or from going out of business. Major companies are crumbling and displacing workers. What jobs are available are lower paying jobs. The cost of drug, health care, health insurance is going up. Our stocks have taken nose dives. Utility Cost have doubled. The Bush admin has given us tax cuts to try and help our economy...lol ... sure doesn't help when the cost keep going up and we get taxed for more things. The programs for the elderly are getting cut...our own Social Security Program is defunk and we need to invest otherwise to support ourselves when we come to that age. How are you going to do that if you can't save or profit from profit sharing and the such? Yes, companies might match a percentage of income but, how much are we losing with it being kept in the stock market? Now don't forget the "Baby Boomers" are lining up! A yet even higher number of beings to support. More health care needs and meds. Don't see a lowering in those programs that is moving fast enough. And sit in your easy chair and listen to how the U.S. is viewed so sorely in Europe and Asia. We all hate to admit it, "Depression" in the U.S. means a vast number of people on a poverty level. Unless you are sittling pretty with a high paying job and keep you outgoing expenses in check...the average citizen IS struggling to keep food in their house and the bills paid. In my company alone, one that has made and astronomical profit in the past few years is facing permenant lay-offs due to the economy. As a rule, lay-offs just didn't happen there. We have had to shut down our international office and are having to shut down some of our national offices. Now you have to also understand we are a company that is ranked high in our industry. I can't even begin to tell you how many people we have that work two jobs or have dependents and their families now living at back at home. Sure sounds like the good ol" days of Depression to me. The only difference is we don't have the ration stamps...or are those call food stamps, now days?

[Steve]

As far as the article and author are concerned, I'd like to point out that Japan, whose citizens have the highest rate of cash savings in the world and (presumably) low CC debt, has one of the worst basket-case economies in the world, right now.

Japan's problem is that nobody wants to part with their cash and invest.

Depressions result from inadequate cash flow. The Great Depression resulted from massive lack of consumer confidence following the Stock Market Crash of 1929. No consumer spending, no sales of products, massive layoffs as a result, resulting in even less consumer spending.....

Really, I learned all this in Fifth grade economics. I'm surprised this O'Higgins fellow doesn't know any better!


Certainly an argument could be made that Americans generally have less fungible savings. But look at it this way. Americans use their money to invest in stocks, bonds, T-bills, and real estate (homes). None of that stuff can easily be spent, but it all has potential for long-term growth.

So, instead of creating several savings accounts worth a couple hundred thousand dollars, we put it into investments and spend our remaining cash flow to finance purchases of capital items on revolving credit lines.

The net result, should the job market collapse? Bankruptcy proceedings would turn over the financial assets of abusers of CC debt back to the banks. An inefficient process, to say the least, but not one to lead to a Depression.

[Neo]

Credit card companies charge interest to the consumer or business for any unpaid balances--big interest in most cases. They charge higher interest rates to those who they think are less credit worthy--but they still give them a card. In fact they solicit their business! The charge over limit fees or late fees.

They charge the merchant a percentage of each purchased used by the consumer to buy the merchants goods.

If the the credit card holder stops paying the credit card company after four or five months of just sending pay us letters and bills stops, sells the debt to a collection agency and then charges it off as bad debt. They don't do anything else.

The collection agency will threaten you but when you ignore them they will do nothing. If you call them up or respond to their inquiries and tell them screw you, I owe you the money but I am going to make my mission in life to never pay you the collection agency usually does nothing.

Ah, duh I wonder why with few exceptions they never do anything? Could it be because in spite of the bad debts they are making money and lots of it? And why pray tell could that be?

[Kluge]

Why do the collection agencies not do anything?
I have heard that credit cards are unsecured personal loans and as such, all the risk is supposed to be assumed by the lender.

I don't know why that would be so, but I have had some experiences with debt collectors (not recently, thank you).

There are some things that revolving-charge companies need to do to straighten up their act.

1. Apply overpayments as advance payments for the coming months. If I send $400 in January on a $50 minimum payment, they are scum to charge late fees in February. All you techies can write the software to fix this fairly!

2. Don't lend money on a 1/36 principal per month basis to buy stuff that wears out in 12 months. Things should have a useful life longer than the payment period, or it's an obvious ploy to increase debt to the maximum the borrower can handle.
Techies can write the yada yada yada

3. Collectors should have the entire account history in front of them when they work. Nothing inspires rage like a collector bitching about $50 when their company has already received twice what they lent in the first place.

4. Collectors should give out their home and cell phone numbers. If they want me to listen to their message when I get home after a 12 hour shift, they should be willing to take a call on their personal time.

5. They really need to think about helping their late payers get work. It's truly pathetic that when somebody is waiting for a call from a prospective employer, a moron from a collection agency is tying up the phone asking why they aren't getting paid.

6. They have to stop the fine-print scams. The currently popular ones offer low introductory rates but they are hiding huge late fees and 'penalty' interest rates that approach the legal limits.
My sister worked for a you-may-have-already-won company and they got put out of work for things much less offensive than those credit scam artists. Just look at the color of that type on the back of your bill: some of them use light gray type in tiny print.

7. They should have human beings write and sign their letters. This seems to have been impossible for at least one company. They deserved what they got after that: nothing.